Only 6.5% of SMEs using alternative finance file for bankruptcy

17-Oct-2018

A 2018 OECD report has shown that alternative investment companies are thriving, as increasing numbers of small and medium-sized businesses turn to alternative finance as opposed to traditional bank loans to cover their costs. The report also shows that just 6.5% of SMEs using alternative finance methods file for bankruptcy.

The countries with the highest number of SMEs borrowing from alternative finance providers are China, the United States, and the United Kingdom. In the U.S., SME owners between the ages of 18-36 are most likely to turn to alternative finance to fund their business. Meanwhile in the UK, 99.9% of private sector businesses were SMEs, which made up 60% of all private sector employment with 16.1m employees.

Whilst the growth trajectory shows alternative finance to be thriving amongst SMEs, this type of investment has been criticised for too little transparency and the difficulties involved in carrying out due diligence procedures on lenders and borrowers. This is based on the statistic that between 10%-20% of individuals who turn to alternative finance for a short-term default on their repayments.

As the alternative financing sectors seek to improve its image in parallel with its growing positive reputation amongst SMEs, a number of alternative finance providers are clamping down on who they lend to, with some electing to only offer loans to SMEs and bypass personal loans all together.

The trend of SMEs turning to alternative finance providers shows no sign of slowing down, and their reputation as a favourable source of finance amongst SMEs is unlikely to stop. However, it is down to providers to implement stricter due diligence procedures on individuals seeking loans to improve the reputation of alternative finance on a greater scale.